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The Original Patent Troll

Learning from the market’s past to understand its present.

Today, "patent warfare" often means smartphone manufacturers suing each other over "slide to unlock" and the design of interface icons. More than a century ago, the great patent battle of the age centered on automobiles. Then, as now, patent trolls could exert outsized influence, and one of the most notorious "troll" patents in American history was issued to patent lawyer and sometime inventor George B. Selden on Nov. 5, 1895.

George Selden first filed his "road engine" patent in 1879, years before the Duryea brothers unveiled the first mass-produced auto in the United States. However, he delayed the patent's granting for years with multiple amendments, ensuring it would be granted only after the auto industry offered a sizable enough revenue stream to produce large royalty fees. Selden's patent was interpreted so broadly that it covered every automobile built after the patent's granting, although the internal-combustion engine the patent focused on was in fact a near-replica of a larger engine Selden had seen at the 1876 Centennial Exposition.

Selden partnered with William C. Whitney of the Electric Vehicle Company to extract licensing fees from numerous early automakers, and many of the cars built during the first decade of the 20th century bear a plaque that reads "Manufactured under Selden Patent." In short order, the Selden patent formed the basis for an early automaker's cartel known as the Association of Licensed Automobile Manufacturers, or ALAM.

Selden and his cartel had a fatal blind spot, centered on the growing metropolis of Detroit and its most successful automaker, Henry Ford. Ford(NYSE:F) steadfastly refused to pay royalties for the Selden patent. The patent lawsuit dragged on for years, during which time ALAM and Ford issued several dueling newspaper ads, with ALAM threatening to sue anyone who so much as used an unlicensed auto and Ford offering protection against prosecution, ending one ad with the boastful claim that "we have always been winners."

The lawsuit bankrupted the Electric Vehicle Company -- which had virtually no useful assets other than the Selden patent -- in 1907. Ford defeated the Selden patent in 1911 by properly claiming that it only covered vehicles with engines using the same design Selden had copied from the Centennial Expo. Because no successful automaker used this engine at the time, the Selden patent became effectively worthless. For a brief few years, George Selden was one of the most important figures in a transformative new industry, despite making no effort to actually build cars until 1909 -- and then only with marginal success.

No dearth of dot-com data Two notable events in the American dot-com era occurred on Nov. 5, 1999. One was important for its legal implications, and one symbolized the ridiculous excesses of the period.

The legal battle between Microsoft(NASDAQ:MSFT) and the U.S. Department of Justice closed out its first round on Nov. 5, 1999, with U.S. District Court Judge Thomas Penfield declaring that the operating-system titan held monopoly power. Microsoft, which had joined the Dow Jones Industrial Average(DJINDICES:^DJI)less than a week earlier, promised to appeal, but this was near the top for the company, which saw its stock begin to decline to start the new century. Less than two years later, Microsoft came out victorious on appeal. It still controls nearly 90% of the worldwide operating-system market, though it remains far behind in the mobile space. In the end, the relentless advance of technology might do what the Justice Department couldn't -- make Microsoft mortal.

In fact, it was exactly eight years later, on Nov. 5, 2007, that Google(NASDAQ:GOOGL) first unveiled its Android mobile OS. Android now accounts for two-thirds of the entire smartphone OS market, and it continues to increase its market share with each passing quarter. Microsoft's OS, meanwhile, controls fewer than 3% of smartphones today.

Webvan went public on Nov. 5, 1999, concluding its first trading day with a market cap of $8.5 billion. A year and a half later, the company filed for bankruptcy. Despite Webvan's colossal failure to meet the promise of same-day delivery service from an online retailer, both Amazon.com(NASDAQ:AMZN) and Google have recently decided to offer same-day delivery in San Francisco. Dow component Wal-Mart(NYSE:WMT) is also testing same-day delivery in a limited number of cities, and with thousands of locations, it has to be the favorite to make this work. Maybe the lesson here is that an online retailer should lead with a great product selection first and only later experiment with same-day delivery.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

Author

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.